Cenvat credit on Naphtha for steam and electricity generation upheld; disclosure defeated suppression and penalty.

Cenvat credit was admissible on Naphtha used to generate steam and electricity that were returned for use in manufacture, because the credit scheme expressly covered inputs used for generation of such intermediate products and their return within the prescribed period. Treating the power plant as a job worker on the facts, the change in form or identity of the input did not defeat credit, and reliance on Notification No. 214/86-C.E. was misplaced. As material facts were disclosed to the department, suppression was not established, so the extended period and penalty were not sustainable.

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Issues: Whether Cenvat credit was admissible on Naphtha sent to a power plant for generation of steam and electricity returned for use in manufacture, and whether the extended period and penalty were sustainable.

Analysis: The definition of input specifically covered goods used for generation of electricity or steam used in manufacture of final products or for other purposes within the factory of production. The relevant credit provisions also permitted inputs or partially processed inputs to be sent to a job worker for further processing, testing, repair, re-conditioning or any other purpose, with return within the prescribed time. The power plant was treated as a job worker on the facts found, since the appellant supplied the raw material free of charge, received the steam and electricity back within a short time, and paid only conversion charges. The mere change in the form or identity of the inputs did not defeat credit, and the reliance on Notification No. 214/86-C.E. was misplaced. The appellant had disclosed the material facts to the department, so suppression was not established.

Conclusion: Cenvat credit was admissible to the assessee on the Naphtha used for generation of steam and electricity, the extended period of limitation could not be invoked, and penalty was not warranted.

Final Conclusion: The order disallowing credit and confirming duty, interest and penalty was set aside, while the connected appeal was dismissed as infructuous.

Ratio Decidendi: Where inputs or partially processed inputs are sent out for generation of intermediate products that are returned for use in manufacture, credit is admissible if the statutory credit scheme expressly covers such inputs and the goods are received back within the prescribed period, notwithstanding a change in identity of the inputs.

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